Recent Michigan tax legislation (S.B. 367 effective December 30, 2013) allows an “affiliated group” to elect to be treated as a “unitary business group” and file combined corporate income tax returns for tax years that begin after 2012. Affiliated group has the same definition as stated in Internal Revenue Code Section 1504, except it includes all United States persons that are corporations, insurance companies or financial institutions (no foreign operating entities). More than 50% ownership is required for an affiliated group under Michigan law as compared to 80% under federal law (control test).A unitary business group is a group of two or more U.S. persons that are corporations, insurance companies or financial institutions that satisfy the 50% control test and a relationship test. The relationship test requires a flow of value among members of the group or an integration of operations where members are dependent upon or contribute to each other. Under the new legislation, affiliated groups are not required to meet the relationship test.
The affiliated group shall make the election to file a combined return without the consent of the Michigan Department of Treasury with a timely filed corporate income tax return on Form 5114. The form is still in the review phase and has not been released by the Department. The election is irrevocable and effective for a ten-year period. An entity that joins the affiliated group after the election is made is deemed to have consented and is bound by the election. The election shall remain in effect as long as the ownership requirement is met, regardless of whether the affiliated group continues to file a federal consolidated return. Upon expiration of the ten-year period, the election may be renewed for another ten-year period. If the election is not renewed, a new election is not permitted for the following three years.
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